The question of whether a company needs a Human Resources (HR) department is not

a simple one to answer. Ask the question to a variety of entrepreneurs, CEOs, and HR
professionals and youre likely to get a variety of answers. For instance, many experts
will tell you that the number of employees in a company is the determining factor. A lot
of companies with total employees under 20 assume that they dont need an HR
department. But size isnt the only issue to think about. Other considerations include:
The scope of HR services needed.
Whether requirements are limited to transactional services.
Are strategic services mandatory?
Will the departments operate as a cost or profit center?
Apparently, since every organization needs employees to work and labor to carry out
the technical side of a business, it is important for the organization to have a certain
section which looks after the training, development, welfare, association and
involvement of the employees within the organization.
The point to be noted here is that employees do not work in an organization just for their
salaries. They also expect more out of the organization just as they are willing to deliver
more on the organizations request.
This is where the part of compensating and rewarding the employees comes into a
prominent role. The idea first originated in ancient Rome where workers were often
rewarded for a days good labor or were provided with medicine or rich food for his
entire family. That is one of the reasons that made the Roman Empire peaceful as it
never had to deal with any internal problems. It is pretty logical for an organization to
offer compensation and other facilities to retain its employee. It also is important for
better productivity as the employee will work efficiently only if he is provided with a
comfortable environment.
Therefore one can say that apart from ll the other work that a manager performs,
keeping the employee satisfied is also important. Now we will take a deep look as to
what are the different ways an employee can be facilitated and we will also try to
analyze these functions on the basis of psychology, science and social cause.

COMPENSATION MANAGEMENT

Compensation Management is an organized practice that involves balancing the workemployee relation by providing monetary and non-monetary benefits to employees.
Compensation includes payments such as bonuses, profit sharing, overtime pay,
recognition rewards and sales commission. Compensation can also include nonmonetary perks such as a company-paid car, company-paid housing and stock options.
Compensation is an integral part of human resource management which helps in
motivating the employees and improving organizational effectiveness.

Importance of Compensation Management

A good compensation is must for every business organization and helps in the following
way:

It tries to give proper return to the workers for their contributions to the
organization.

It imparts a positive control on the efficiency of employees and encourages them

to perform better and achieve the specific standards.

It forms a basis of happiness and satisfaction for the workforce that minimizes
the labor turnover and confers a stable organization.

It augments the job evaluation process which in turn helps in setting up the more
realistic and achievable standards.

It is designed to comply with the various labour acts and therefore does not result
in disputes between the employee union and the management. This builds up a
peaceful relationship between the employer and the employees.

It arouses an environment of morale, efficiency and cooperation among the

workers and provides satisfaction to the workers.

It stimulates the employees to perform better and show their excellence.

It provides growth and advancement opportunities to the deserving employees.

Types of Compensations

Direct Compensation is typically made up of salary payments and health

benefits. The creation of salary ranges and pay scales for different positions within
the company are the central responsibility of compensation management staff.
Direct compensation that is in line with industry standards provides employees with
the assurance that they are getting paid fairly. This helps the employer avoid the
costly loss of trained staff to a competitor.

Indirect Compensation focuses on the personal motivations of each person to

work. Although salary is important, people are most productive in jobs where they
share the company's values and priorities. These benefits can include things like
free staff development courses, subsidized day care, the opportunity for promotion
or transfer within the company, public recognition, the ability to effect change in the
workplace, and service to others.

Components of Compensation

Wages and Salary: Wages represent hourly rates of pay, and salary refers to the
monthly rate of pay, irrespective of the number of hours put in by an employee.
These are subject to annual increments.

Allowances: Several allowances are paid in addition to basic pay. Some of

these allowance are given below:
o

Dearness Allowance: This allowance is given to protect real income

against inflation. Generally, dearness allowance (DA) is paid as a percentage of
basic pay.

House Rent Allowance: Employers who do not provide living

accommodation pay house rent allowance (HRA) to employees. This allowance
is calculated as a percentage of basic pay.

City Compensatory Allowance: This allowance is paid generally to

employees in metros and other big cities where cost of living is comparatively
high. City compensatory allowance (CCA) is generally a fixed amount per month
(30 per cent of basic pay in case of government employees).

Transport Allowance/Conveyance Allowance: Some employers pay

transport allowance (TA) to their employees. A fixed sum is paid every month to
cover a part of traveling charges

Incentives: Incentive compensation is performance-linked remuneration paid

with a view to inspire employees to work hard and do better. Both individual
incentives and group incentives are used. Bonus, profit-sharing, commissions on
sales are some examples of incentive compensation

Fringe Benefits/Perquisites: These include employee benefits such as provident fund,

gratuity, medical care, hospitalization, accident relief, health and group insurance,
canteen, uniform, recreation and the likes.

Establishing the Pay Structure

Compensation surveys
Used to gather factual data on pay rates for other organizations
Information is often collected on associated employee benefits as well.

Wage curves
Drawn by plotting job evaluation data (such as job points or grades)
against pay rates (actual or from survey data).
Indicate whether the pay structure is logical.
Wage structure

Designates pay ranges for groups of jobs which are

similar in value to the organization
grouped by their classifications, grades or points.
Results in a logical hierarchy of wages, consisting of ranges that overlap.

BENEFITS & SERVICES

Employee benefits are optional, non-wage compensation provided to employees in

addition to their normal wages or salaries. These types of benefits may include group
insurance (health, dental, vision, life etc.), disability income protection, retirement
benefits, daycare, tuition reimbursement, sick leave, vacation (paid and non-paid),
funding of education, as well as flexible and alternative work arrangements.

Although expensive, there are many intrinsic benefits to providing your employees with
a comprehensive benefit plan. For most, it is the ability to find and keep highly qualified
staff that is the key driver. With the sector being highly competitive and the number of
new employees entering the workforce dwindling, employers are challenged to become
even more creative and responsive in the design, timing and generosity of their benefit
plans. The more progressive the organization, the more flexible the structure is in
response to todays challenges: i.e. like having four different generations of employees
working side by side. Employers who continue to provide the more traditional and
limited program, may find it more difficult to find and keep different types of employees.
Here are just a few of the advantages of offering benefits to your employees:
For employers:

By providing increased access and flexibility in employee benefits, employers can

not only recruit but retain qualified employees
Providing benefits to employees is seen as managing high-risk coverage at low
costs and easing the company's financial burden
Employee benefits have been proven to improve productivity because employees
are more effective with they are assured of security for themselves and their families
Premiums are tax deductible as corporation expense, which means savings for the
organization.

For employees:

Employees can experience a peace of mind which leads to increased productivity

and satisfaction by being assured that they are their families are protected in any
mishap
Employees with personal life and disability insurance can enjoy additional protection
including income replacement in the event of serious illness or disability
Employees can feel a sense of pride in their employer if they are satisfied with the
coverage they receive.